Long Island Lighting Co. v. Standard Oil Co. of California

• Decision Date: 22 August 1975
• Docket Number: D,Nos. 1118,1119,s. 1118
• Citation: 521 F.2d 1269
• Parties: 1975-2 Trade Cases 60,464 LONG ISLAND LIGHTING COMPANY, Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA et al., Appellees. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA et al., Appellees. ockets 75-7177, 75-7178.
• Court: U.S. Court of Appeals — Second Circuit

Page 1269

521 F.2d 1269

1975-2 Trade Cases 60,464

LONG ISLAND LIGHTING COMPANY, Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA et al., Appellees.

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. STANDARD OIL COMPANY OF CALIFORNIA et al., Appellees.

Nos. 1118, 1119, Dockets 75-7177, 75-7178.

United States Court of Appeals Second Circuit.

Argued June 18, 1975.

Decided Aug. 22, 1975.

Lord, Day & Lord, New York City, for appellees Standard Oil Co. of California and Chevron Oil Trading Co.; G. Kenneth Handley, Gordon D. Spivack, John W. Castles, 3d, Harry G. Sklarsky, David H. Marks, Carolyn T. Ellis, New York City, Pillsbury, Madison & Sutro, San Francisco, Cal., Turner H. McBaine, Wallace L. Kaapcke, Thomas E. Haven, San Francisco, Cal., of counsel.

Donovan, Leisure, Newton & Irvine, New York City, for appellee Mobil Oil Corp.; Sanford M. Litvack, James A. Magee, Benjamin Vinar, New York City, of counsel.

Debevoise, Plimpton, Lyons & Gates, New York City, for appellee Texaco Overseas Petroleum Co.; Robert V. von Mehren, Irwin J. Sugarman, New York City, of counsel.

Rosenman, Colin, Kaye, Petscheck, Freund & Emil, New York City, for appellants- ; Asa D. Sokolow, David W. Cohen, Charles A. Soberman, Paul E. Levine, New York City, of counsel.

Kaye, Scholer, Fierman, Hays & Handler, Charles F. Kazlauskas, Jr., New York City, for appellee Texaco Inc.; Milton Handler, Milton J. Schubin, Daniel E. Lazaroff, New York City, of counsel.

Before GIBBONS, ^* GURFEIN and MESKILL, Circuit Judges.

GIBBONS, Circuit Judge:

This is a consolidated appeal by Long Island Lighting Company (LILCO), and Consolidated Edison Company of New York, Inc. (CON EDISON). Both companies were plaintiffs in separate antitrust actions which had been consolidated for trial in the district court. That court granted the defendants' joint motion, pursuant to Rule 12(b)(6), Fed.R.Civ.P., to dismiss the first and second counts of the LILCO complaint and the first count of the CON EDISON complaint. ¹ We affirm the dismissal of the first count in both complaints, but reverse the dismissal of the second count of the LILCO complaint and remand that claim to the district court for further proceedings.

The plaintiffs LILCO and CON EDISON are public utilities that generate and distribute electricity for consumption in the State of New York. The defendants are three integrated petroleum companies and two of their subsidiaries: Standard Oil Company of California (SOCAL) and its wholly-owned subsidiary Chevron Oil Trading Company; Texaco, Inc. (TEXACO) and its wholly-owned subsidiary Texaco Overseas Petroleum Company; and Mobil Oil Corporation (MOBIL).

In order to generate electricity, LILCO and CON EDISON purchase low sulphur residual fuel oil which is produced in the course of refining low sulphur crude oil. Environmental regulations require that utilities burn low sulphur residual fuel oil in most of their fossil fuel generating plants. This case grows out of the very sharp increase in price of that grade of oil beginning late in 1973, and it presents the issue whether LILCO and CON EDISON may recover damages under § 4 of the Clayton Act, 15 U.S.C. § 15, or obtain injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26, by reason of the actions of the defendants alleged in the complaint. The allegations of the first count of each complaint are identical for all purposes relevant to this appeal and will be treated together. The second count of the LILCO complaint requires separate treatment. However, with respect to each count, the question presented is whether a Rule 12(b)(6) motion to dismiss was properly granted.

I. The First Count

In addition to the parties in this action, the complaints refer to activities by the following:

LIBYA The Libyan Arab Republic, in which are located deposits of low sulphur crude oil.

NOC The Libyan National Oil Company, an oil corporation owned by the Libyan government.

AMOSEAS American Overseas Petroleum Limited, a company jointly owned by SOCAL and TEXACO, which in 1973, was engaged in crude oil drilling and producing in Libya at oil concessions granted by that government.

ARAMCO Arabian American Oil Company, a company jointly owned by SOCAL, TEXACO, MOBIL, Exxon corporation, and the government of Saudi Arabia, engaged in the production, refining and transportation of crude oil produced in Saudi Arabia, a Persian Gulf state.

OPEC The Organization of Petroleum Exporting Countries, an organization of certain Asian, African and Latin American countries, which account for the bulk of the known world crude oil reserves, of which Libya and Saudi Arabia are members.

LPG The London Policy Group, a group of major oil companies with interests in OPEC countries formed in January 1971 to plan policy with respect to, and to bargain jointly with, the OPEC countries.

NEPCO New England Petroleum Corporation, one of the largest independent importers, refiners and distributors of petroleum products in the United States.

NEPCO has been LILCO's sole supplier of residual oil requirements since 1960, and a major supplier of CON EDISON since 1967. In 1967 SOCAL entered into a long term supply agreement with NEPCO whereby it agreed to supply NEPCO with substantially all of its share of AMOSEAS' output of low sulphur Libyan crude oil and to deliver it to a refinery in the Bahamas that would be owned 65% By NEPCO and 35% By SOCAL. This long term supply agreement induced LILCO and CON EDISON to enter into long term supply agreements for low sulphur oil with NEPCO, which extend to 1980. The effect of the SOCAL-NEPCO agreement was to make SOCAL's share of AMOSEAS low sulphur oil a major source of low sulphur oil for the East Coast of the United States. By September, 1973, when low sulphur fuel was in extremely short supply, the Libyan source became the only available supply.

However, in August, 1973 the government of Libya had demanded that NOC, its state-owned production company have a 51% Interest in the oil companies' rights under their Libyan concession agreements. The Libyan demand became a matter of great concern to the London Policy Group (LPG). The LPG, it will be recalled, had been founded in January, 1971 by the defendants and other oil companies to present a common front to OPEC. It was agreed that if an OPEC country nationalized one of LPG's member's interests, the other members would endeavor to make up the losses. This policy of concerted action was put to the test in the face of the Libyan demands. However, a split developed between those LPG members whose primary interests were in the Persian Gulf, the center of major production, and who held only secondary interests in Libya, (the "chiefs"), and those smaller independent companies whose primary interest was in the less substantial Libyan production. The smaller independents decided to acquiesce to the Libyan demands while the "chiefs" refused. The complaints allege in identical language:

"SOCAL, TEXACO, MOBIL and other major LPG members received similar offers (as had the smaller independents) from the Government of Libya for a 51% Participation by NOC in their Libyan interests. In their judgment, however, a grant of a 51% Interest in their Libyan holdings would have jeopardized their far more vast and more valuable holdings in the Persian Gulf area, where they had succeeded in negotiating much more favorable agreements, including that with the Government of Saudi Arabia for a 25% Participation in ARAMCO. Accordingly, SOCAL, TEXACO, MOBIL and other major LPG members concertedly decided to reject and did reject this proposal of the Libyan Government."

(LILCO Complaint P 31, Joint App. at 11a-12a; CON EDISON Complaint P 30, Joint App. at 34a-35a).

The Libyan proposal having been rejected by the defendants, that government announced that it would nationalize a 51% Interest. Thereupon, to summarize the allegations of the complaint, the defendants organized a group boycott of Libyan oil, refusing to lift Libyan oil, or to transport it to the Bahamas refinery, and attempting to prevent NEPCO from obtaining it.

After the group boycott commenced NEPCO entered into negotiations with NOC for the purchase of the approximate quantity of low sulphur crude oil that SOCAL had previously been supplying, but at substantially higher prices and on less favorable terms. Since SOCAL had withdrawn its tankers pursuant to the alleged group boycott, NEPCO also had to make more costly transportation arrangements. NEPCO notified LILCO and CON EDISON that the replacement oil would be offered at substantially higher prices. LILCO and CON EDISON, unable to obtain low sulphur residual oil from other sources, agreed to purchase the NOC oil refined by NEPCO. ²

The plaintiff utilities allege that by virtue of a fuel adjustment provision contained in their tariff schedules establishing rates for electric power a portion of these fuel price increases is passed on to their customers, but they also allege that they have incurred increased costs, substantial losses in business from present and potential subscribers to their electric services, and impairment of investor confidence resulting in increased cost of marketing their securities.

Thus, construing the complaint in the light most favorable to the plaintiffs, the first count charges that the defendants, motivated by their interest in strengthening their position in dealing with Saudi Arabia, organized a group boycott against Libyan oil in an effort to dissuade the Libyan government from nationalizing 51% Of their oil concessions; that pursuing the boycott of Libyan oil they stopped delivering it to NEPCO; that NEPCO obtained it directly from NOC at higher prices, and that LILCO and CON EDISON were forced to pay these higher prices.

The district court concluded that those allegations were insufficient to state a claim upon which relief could be granted under §§ 4 & 16 of the Clayton Act. It reached this conclusion for...